Europe's unprofitable coal mines will have to be shut down within the next four years before state subsidies are halted, the European Commission said yesterday (20 July).

Background

Europe's coal industry has been declining since the 1950s, as prices for imported coal have decreased and local extraction costs have increased.

With the expiry of the European Coal and Steel Community treaty in 2002, the EU adopted a regulation on state aid to the sector in order "to allow for the continued restructuring of the coal industry".

The current coal regulation, which allows sector-specific state subsidies for hard coal, is set to expire at the end of the year. In the absence of a new framework, the industry would be subject to general EU state aid rules, which would significantly reduce its options for state aid. The general provisions already apply to other types of coal, such as lignite.

The EU executive presented a proposal for a new regulation that would allow member states to grant operating aid to coal mines only if they present plans to close by 15 October 2014.

The subsidies would have to be gradually reduced by at least 33% every 15 months and paid back to the state in case the mine fails to close on time.

The new regulation is to set up a transition regime as the current coal regulation expires at the end of the year. The new rules would allow the hard coal industry to receive closure aid but they would no longer be granted aid for investment or accessing coal reserves.

The aim of the regulation is to bring to an end decades of repeatedly extended subsidy schemes to maintain uncompetitive mines, instead directing state aid towards paying for the social and environmental consequences of closures.

"Companies need to be viable without subsidies. This is a question of fairness vis à vis competitors that operate without state aid. This is also in the interests of taxpayers and of government finances, which are considerably constrained," said EU Competition Commissioner Joaquín Almunia

Member states would have to complement any decision to grant closure aid with a series of measures to compensate for the negative environmental impact of aid to coal, for instance in the fields of energy efficiency, renewable energy or carbon capture and storage.

An earlier draft suggested that the Commission was preparing to allow subsidies to continue until 2023, angering environmentalists who have been urging the EU to discontinue fossil fuel subsidies in line with its climate commitments (EurActiv 24/06/10). But Commissioner Almunia came under pressure from his colleagues to reduce the timeline.

"Renewable, clean energy is the way to go, but we cannot ignore the dire regional economic and social consequences that would follow a sudden closure of the loss-making mines at this time of low or no growth and high unemployment," said Almunia.

The Commission hopes that the transition period will help mitigate the social impact of phasing out state aid. It warned that coal-mining regions could be flooded with redundant coal workers, as regional unemployment rates could increase by up to 2.5% percentage points. Germany's Ruhr region, north-west Spain and the Jiu Valley in Romania would be worst affected, it said.

Closing mines would only impact on the EU's overall energy mix over time, the EU executive added. It argued that indigenous production will in the first instance most likely be replaced by imported coal from third countries, as the Czech Republic and Poland are the only member states that export some of their production rather than consuming it all themselves.

Most coal subsidies under the regulation are handed out by Germany and Spain, while Hungary, Poland, Romania and Slovakia make limited use of them.

Germany has a national plan to close all its hard coal mines by 2018, but it would have to accelerate closure if the proposed regulation is passed in its current form. Spain, on the other hand, so far has no such plans and is likely to pull a few strings in its favour.

Positions

Green group WWF celebrated the proposal as a significant improvement on earlier drafts, urging member states not to dilute it.

"The [European] Commission has stood up to complacent attitudes and acted in the broader European interest,” said Mark Johnston, senior policy adviser at WWF's European Policy Office. "Public money must be directed rapidly towards making the green economy flourish and providing genuine climate and energy security."

"The Commission's tougher than expected stance on coal subsidies is a welcome decision," said Brook Riley, climate justice and energy campaigner at Friends of the Earth Europe. "Redirecting fossil fuel subsidies towards renewables and energy efficiency is the financially smart, socially just and environmentally effective policy that the EU must show more of."